NEW YORK—Stocks finished higher after a white-hot reading from mid-Atlantic manufacturers outweighed worse-than-expected jobs figures and a rise in U.S. consumer prices.

A day after investors pushed the Standard & Poor's 500-stock index to twice its financial-crisis low, the Dow Jones Industrial Average hit a fresh two-and-a-half year high, rising 29.97 points, or 0.24%, to 12318.14.

The S&P 500 gained 4.11 points, or 0.31%, to 1340.43, and the Nasdaq Composite gained 6.02 points, or 0.21%, to 2831.58.

Jonathan Cheng explains why stocks staged a turnaround after starting the session in the red.

The Federal Reserve Bank of Philadelphia's index of general business activity hit its highest level since January 2004, beating expectations. But the U.S. labor market remained sluggish, blunting investors' optimism. Initial jobless claims increased more than expected last week, the Labor Department said.

"The Philly Fed index shows that growth has been fantastic, but with the CPI rising just a bit more than expected and growing tensions in the Middle East, we have this hangover," compounded by high unemployment, Robert Russell, President of Russell & Co. in Dayton, Ohio said.

Mr. Russell said that geopolitics and rising commodity prices were two of the issues tempering the optimism over manufacturing Thursday.

Investors were keeping a close eye on tensions in Libya, Bahrain, and fears of a standoff between Iran and Israel over the Suez Canal.

"If it was just Iran sending ships, that's one thing, but you've also got Libya and Bahrain in the news, plus Egypt," Jay Suskind, senior vice president at Duncan Williams, said. "I do still think the average investor is more focused on the domestic economy. A geopolitical storm could have investors saying, 'Let's take some profits,'" he added.

Among stocks in focus, Weight WatchersNTAP-1.33% surged $20.47, or 46%, to 65.39, hitting an all-time high as the company's fourth-quarter profit more than doubled. While the surge surprised investors in the stock market, analysts in the options market were buzzing over big, remarkably well-timed trades earlier in the week that set up some investors for huge profits.

"They made a ton of money on these, in a matter of days," Interactive Brokers equity options analyst Caitlin Duffy said.

Big trades Monday in Weight Watchers' typically thinly traded February $45 call options jumped from prices of 85 cents to 95 cents Monday to more than $20 on Thursday, a huge windfall for traders who held the contracts.

Confusing stories about Iranian warships possibly entering the Mediterranean and antagonizing Israel are causing some jitters in Treasurys and foreign exchange but the stock market is more focused on domestic economic data. Michael Casey, Deborah Blumberg and John Shipman report.

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Elsewhere, NetAppAPA-1.33% weighed on the technology sector, skidding 3.77, or 6.4%, to 54.77, after a disappointing earnings report.

But chip maker NvidiaNVDA-0.35% rose 2.30, or 9.8%, to 25.68, after the company posted a 31% increase in fourth-quarter earnings and better-than-expected first-quarter guidance late Wednesday.

Natural-gas group Williams Cos.WMB-0.94%' stock rose 2.32, or 8.4%, to 30.08, after its board approved a plan to spin off its exploration and production business.

Overseas, the Stoxx Europe 600 index rose 0.2% to end at 291.16, its highest closing level since at least August 2008. Japan's Nikkei Stock Average added 0.3% to 10836.64.

Cliffs NaturalCLF-4.91% rose 6.64, or 7.2%, to 99.52, after the coal and iron-ore producer reported that its fourth-quarter profit that more than tripled, with higher sales volume and prices.

Cowen GroupCOWN-1.57% fell 33 cents, or 7%, to 4.39. The company agreed to acquire LaBranche & Co. for about $192.8 million in stock, boosting its market-making capability in options, exchange-traded funds and futures. The offer price was $4.71 a share, a premium to LaBranche's Wednesday closing price. LaBranche climbed 20 cents, or 4.9%, to 4.26.

Avis Budget GroupCAR1.26% added 86 cents, or 5.5%, to 16.52. The car-rental giant's fourth-quarter loss narrowed on revenue growth as the company benefited from a rebound in commercial and leisure travel.

Dr Pepper Snapple GroupDPS0.50% added 1.95, or 5.7%, to 36.20. The beverage company's fourth-quarter earnings fell 1.8% on tax- and debt-related charges, but it posted stronger volume and pricing. The company also projected 2011 results in line with Wall Street views, calming fears that high commodity costs would be more harmful to its bottom line.

EcolabECL-0.25% fell 2.62, or 5.3%, to 47.12. The cleaning-products maker's fourth-quarter profit rose 13% on strong international sales, but the company also said it plans to cut about 900 jobs in Europe as part of a restructuring effort.

Fair IsaacFICO-1.39% surged 2.77, or 11%, to 28.12. The credit-scoring company said it will reduce operating expenses through staffing reductions, facility consolidations and reductions in discretionary spending. Wedbush raised its investment rating on stock to "neutral" from "underperform" and Northland Securities upgraded its investment rating on the stock to "outperform" from "market perform."

J.M. SmuckerSJM0.84% climbed 2.70, or 4.2%, to 66.65. The food-products company's fiscal third-quarter earnings slipped 2.6% on restructuring and merger charges, but higher sales in its coffee business boosted revenue and adjusted earnings.

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